Karachi Chamber of Commerce and Industry (KCCI) has suggested that policy-making process and tax legislation should be separated from enforcement and administration. According to the KCCI, its tax proposals are aimed at bringing the tax regime in line with economic goals of the nation as well as to ensure a high rate of growth. The KCCI opined that Pakistan cannot afford to continue with the current narrow tax base due to out-dated tax regime, discretionary powers and disproportionate hold of bureaucracy on formulation of economic and tax policies.
"Current taxation regime of both direct and indirect taxes has created distortions in economy, the noted, saying greater dependence on indirect taxes has only burdened the masses and poor segments of the society because most indirect taxes are ultimately passed on to consumers by entire supply chain and, as such, the middle and lower income groups suffer from this burden.
The KCCI pointed out that despite the high rate of GST at 17 per cent and additional 3pc on commercial imports, the net collection of GST after refunds and adjustments was hardly 3.75 to 4.25pc. This in itself is indicative of failure on both counts ie policy formulation and tax administration and enforcement, it added. Moreover, Income Tax and WHT regime has serious compliance issues due to an out-dated regulatory framework, the KCCI said, adding that unchecked and unlimited discretionary powers, complex laws, procedures and lack of required capacity and competencies of the departments responsible for enforcement and collection have resulted in stagnant tax collection and a narrow tax base.
The KCCI suggested that some difficult decisions must be taken to ensure that burden of taxes was evenly distributed so that it did not entirely burden the middle and low-income sections of society. Besides, focus should be on revamping the tax regime to bring it in line with global best practices, transition to e-governance, minimising personal contact between IR officials and tax-payer and most importantly emphasis must be on broadening the tax-base, instead of squeezing the same set of compliant tax-payers.
Deploring that the Federal Board of Revenue (FBR) over the years has not been able to broaden the taxation base and relied heavily on indirect and withholding taxes, the KCCI said: "In fact, lack of vision and conventional approach has resulted in unbridled discretionary powers, corruption and failure to promote a tax culture in Pakistan where the number of registered tax-payers is less than 1.0 per cent of the population."
The KCCI opined that the laws, rules, procedures, valuation rulings, SROs and general orders are a whole set of jurisprudence which is beyond the understanding of an ordinary tax-payer as well as a consultant of mediocre level.
Moreover, it is enough to discourage any new potential tax-payer to register in the tax-net because there are ample opportunities and avenues to invest in undocumented economy and earn a `decent' profit without going into the cumbersome taxation regime, it added.
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